PSBs shift focus to low-cost housing

MARCH 22, 2007: As housing loans with high principal amounts are becoming costlier, public sector banks are trying to shift their focus to low-cost housing. As per a tentative plan prepared by the National Housing Board (NHB), 450 square feet apartments, each costing Rs 4.50 lakh, would be built in metros for consumers belonging to the lower income group, who would avail of loans from state-owned banks. NHB, it is learnt, is already in talks with banks.

The banks are likely to hold a meeting in a couple of months to concretise the plan. A pilot project may be undertaken in Mumbai. The interest rate, according to official sources, will be market driven. “But the amount is small and therefore the actual outflow will be manageable for the consumers,” an official said.

Home loan segment is one of the key areas in retail banking, driving growth in a significant way and the demand for the same has seen a significant increase.

It may be noted that the Reserve Bank of India in its annual policy last year asked banks to set aside 1% as reserve for housing loans beyond Rs 20 lakh. “Banks and housing finance companies (HFCs), following the increase in interest rates, have already witnessed a dip in demand in housing loans in tier II cities and in the next fiscal, the demand is expected to drop even in the major metros,” an analyst said.

The growth in housing loans has already registered a slowdown following the hardening of interest rates. Last year, housing loans grew at 35-40% while this fiscal it has come down to about 30%. NHB’s thrust area has been low-cost housing in both urban and rural areas. The Urban Renewal Mission has laid emphasis on low-cost housing for urban poor.

Source: Financial Express